Bryan Caplan and David Henderson

Arnold Kling: July 2011

An Author Archive by Month (63 entries)

A Macroeconomic Puzzle

Macroeconomics
Arnold Kling
Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.... MORE

Sentences that should be questioned

Political Economy
Arnold Kling
In his semi-farewell column, David Leonhardt writes, we know that a market economy with a significant government role is the only proven model of success I think that the growth of the Internet since 1994 (when the U.S. government turned... MORE

Structural Employment Policy

Labor Market
Arnold Kling
Nick Schulz and I offer ideas, focused on the New Commanding Heights. imagine if state governments experimented by setting up healthcare enterprise zones. These would be areas where entrepreneurs could set up healthcare delivery systems without any rules concerning what... MORE

Recommendations on Income Distribution

Income Distribution
Arnold Kling
1. Hispanics have lost wealth proportionately more than whites. I think it is pretty easy to connect the dots between government policy to expand home ownership and this outcome. As I said at the Senate banking committee, buying a home... MORE

A Fragile Financial Order

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen writes Of the world's share of AAA sovereign debt, we issue 59 percent of it. (Next is Germany with ten percent and then France with nine percent of the total.) You can read this a few ways: 1.... MORE

Resolving Financial Crises

Finance: stocks, options, etc.
Arnold Kling
Isabel Schnabel and Hyun Song Shin write (the same paper is also here), Shortly after the beginning of the Thirty Years War (1618-1648), the small German states and neighboring principalities that comprised the Holy Roman Empire experienced one of the... MORE

Don't Tell Tyler Cowen

Income Distribution
Arnold Kling
About this paper by Ilyana Kuziemko, and others. Why do low-income individuals often oppose redistribution? We hypothesize that an aversion to being in "last place" undercuts support for redistribution, with low-income individuals punishing those slightly below themselves to keep someone... MORE

Models Vs. Hand-Waving

Economic Methods
Arnold Kling
Nick Rowe writes, the answer to the question "what is the effect of a 1% increase in perceived risk on government bonds?" is exactly the same as the answer to the question "what is the effect of a 1% increase... MORE

Timothy Taylor on NCH

Labor Market
Arnold Kling
He writes, In particular, it's intriguing to brainstorm about certain kinds of jobs that are not extremely high on skills (not everyone is going to be a research scientist), but also aren't extreme low-wage jobs either. These would be jobs... MORE

Education and Income Distribution

Economics of Education
Arnold Kling
Catherine Rampell writes, A college graduate at the 25th percentile makes $730 per week, which is still 13.5 percent more than the median high school grad. Here are the numbers, reproduced in tabular format. Earnings QuartileHigh School GradsSome CollegeCollege Grads75th... MORE

More Wisdom from CPK

Books: Reviews and Suggested Readings
Arnold Kling
I've finished Manias, Panics, and Crashes, 5th edition. Some thoughts in addition to my previous ones (here and here). p. 55: The Kipper- und Wipperzeit [according to Wikipedia, translates to tipper and see-saw time] of 1619-1623...got its name from the... MORE

Fogel on the Two-Tier Health Care System

Economics of Health Care
Arnold Kling
Robert Fogel writes, Health care isn't a homogeneous good, all of which is essential. There are large luxury components that may appeal to some but that aren't necessary for sound basic care. It is, of course, necessary to provide medical... MORE

The Great Factor-Price Equalization, Again

Growth: Consequences
Arnold Kling
Dani Rodrik and Timothy Taylor both have posts, including charts, comparing growth in emerging economies with growth in developed economies. Rodrik (pointer from Mark Thoma) is writing about the past twenty years. For the first time ever, developing countries as... MORE

The Wisdom of CPK

Books: Reviews and Suggested Readings
Arnold Kling
If I were writing a blurb for the fifth edition of Charles P. Kindleberger's classic Manias, Panics, and Crashes, I would say that "This is the best narrative that has been written about the 2008 financial crisis, and it was... MORE

A Rant Against Non-Profits

Economic Philosophy
Arnold Kling
Today, I attended this panel (the link already has an audio, so you can listen. I ask a question at one hour and 29 minutes in.) featuring Gara Lamarche, who I mentioned in this post. He was much more self-effacing... MORE

Narrating the Mortgage Crisis

Finance: stocks, options, etc.
Arnold Kling
Christopher S. Foote and Paul S. Willen write, Specifically, the problem with the 2006 loans was not that this vintage included more loans with adjustable rates, zero down payments and reduced documentation (though it did). The problem with the 2006... MORE

Larry Summers on the New Commanding Heights

Economics of Education
Arnold Kling
He says, Look, the most rapidly growing sector of jobs over the last decade, and in the forecasts for the next decade, is health care, and education is in the top five. So we need to embrace that. We need... MORE

Manias, Panics, and Crashes

Books: Reviews and Suggested Readings
Arnold Kling
About the time the first edition came out, in 1978, I read it and also took a course from Charles Kindleberger. At the time, he was in his late 60s, and with his quavering voiced seemed even older. I wanted... MORE

Learn (Austrian) Economics in an Hour?

Austrian Economics
Arnold Kling
The Institute for Humane Studies has put together instructional material on basic concepts related to libertarian thinking. One set of videos pertains to economics, and it has a very strong Austrian flavor. I have only watched a few of them.... MORE

Keynes and Anti-Keynes

Macroeconomics
Arnold Kling
John Taylor writes, In my view, rigidities exist in the real world and to describe accurately how the world works you need to incorporate such rigidities in your models, which of course Keynes emphasized. But you also need to include... MORE

New Commanding Heights Watch

Economics of Health Care
Arnold Kling
Christopher J. Conover writes, Between 1966 and 2007, the entire increase in the size of government relative to the economy resulted from growth in tax-financed health spending. If you have not read it already, you might want to look at... MORE

My Bias on High-Risk Mortgage Loans

Finance: stocks, options, etc.
Arnold Kling
In a comment on this post, David Min writes, So if you want to say that Fannie and Freddie need major reforms because they took on an unacceptably high level of risk, particularly for taxpayer backed entities, welcome to the... MORE

Invoking Irving Fisher

Macroeconomics
Arnold Kling
Lacy Hunt writes, In 1933, Fisher held out some hope that fiscal policy might be helpful in dealing with excessive debt, but within several years he had completely rejected the Keynesian view. By 1940, Fisher had firmly stated to FDR... MORE

Budget Arithmetic

Fiscal Policy
Arnold Kling
Douglas Elmendorf attempts to explain. spending on Social Security and the major health programs is projected to rise from 8.7 percent of GDP in 2007 to 12.2 percent in 2021 Republicans do not like that the Bowles-Simpson plan envisions spending... MORE

What is a High Mortgage Default Rate?

Finance: stocks, options, etc.
Arnold Kling
Some further points. 1. This article says OFHEO has identified as a benchmark the 30- year, fixed-rate mortgages originated in Arkansas, Louisiana, Mississippi and Oklahoma in 1983 and 1984, just before oil prices collapsed. During the first five to six... MORE

Swagel on Mortgage Finance

Finance: stocks, options, etc.
Arnold Kling
Phillip Swagel writes, The longer Fannie and Freddie stay in government hands, the more likely they will become permanent wards of the state. This would be the worst of possibilities, yet it becomes more likely as conservatives push for a... MORE

A Question for Brad DeLong

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen links to Brad DeLong who writes, Arnold Kling's response is simply not good. It is silly enough to make me think he has not thought the issues through. a 7% delinquency rate on a mortgage portfolio is horrible... MORE

Tim Harford makes it. Great 20-minute talk. It's been recommended in various places, but I was prompted by Effy Atkinson's post on Google+.... MORE

Narrating the Financial Crisis

Macroeconomics
Arnold Kling
Scott Sumner raises some challenging points. But the link between the housing bubble and the severe financial panic is much weaker than people realize. And the link between the severe financial panic and high unemployment in 2011 is almost nonexistent.... MORE

Re-Leveraging, Not De-Leveraging

Fiscal Policy
Arnold Kling
Tracy Alloway writes, The turmoil of 2008 shunted some investors from ABS into safer sovereign debt, it's true. But you also had a plethora of incoming bank regulation to purposefully herd investors towards holding more government bonds, plus a glut... MORE

Mea Culpa

Finance: stocks, options, etc.
Arnold Kling
So, in this debate with commenters over stock returns vs. GDP growth, I may have to concede. The ratio of stock prices to GDP is P/Y. Assuming no dividends, that means that P/Y has to increase for stock returns to... MORE

Scott Sumner Asks a Question

Monetary Policy
Arnold Kling
Scott Sumner asks, So why does the banking crisis in 2008 cause low NGDP in 2011? Possible answers: 1. Because Reinhart and Rogoff say that financial crises cause pain for a long time. They don't have an explanatory model, but... MORE

Mortgage Loans with Low and High Risk

Finance: stocks, options, etc.
Arnold Kling
David Min criticizes the analysis of Peter Wallison and Ed Pinto of the role played by Freddie Mac and Fannie Mae in the housing bubble. (Pointer from Mark Thoma.) The centerpiece of Min's critique is a chart that shows the... MORE

Robin Hanson on Market Failure

Business Economics
Arnold Kling
At Cato Unbound, He writes, Finally, consider next the many functions and roles of managers, both public and private. By being personally impressive, and by being identified with attractive philosophical positions, leaders can inspire people to work for and affiliate... MORE

Finished Reading Pallotta

Books: Reviews and Suggested Readings
Arnold Kling
Bracing diagnosis, disappointing prescription. Having finished Uncharitable, I have that capsule review. As I see the diagnosis, donors evaluate non-profits on criteria that are not related to results. The big one is "percentage of donations that go to the cause."... MORE

More Thoughts on Philanthropy

Economic Philosophy
Arnold Kling
From Gara Lamarche: it is values that move people to enthusiasm and action, not more sterile concepts of metrics and results. Read the whole thing. Rarely do I encounter a piece that I disagree with so broadly and so deeply.... MORE

The Case for Fiscal Expansion

Macroeconomics
Arnold Kling
There is an argument for fiscal expansion, which is "unemployment is bad, and Republicans are bad for wanting to cut spending, especially when there is a lot of unemployment." However, if you want to change someone's mind, you need something... MORE

End the IMF?

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
No, this is not Ron Paul who writes, The IMF's business model sabotages properly functioning capitalism, victimizing ordinary people while benefiting the elites. Do we need international agencies to enable irresponsible--verging on immoral--borrowing and lending? Instead of dreaming up too-clever-by-half... MORE

What I'm Reading

Books: Reviews and Suggested Readings
Arnold Kling
Uncharitable, by Dan Pallotta. Recommended by Amy Willis with regard to my discussion of nonprofits. So far (I am less than 1/4 through), the book says the following: 1. Organizations that seek to achieve charitable ends should be permitted to... MORE

The Great Factor-Price Equalization

Labor Mobility, Immigration, Outsourcing
Arnold Kling
Tyler Cowen writes, job creation from start-ups has been falling since the 1980s. He cites a paper by E.J. Reedy and Robert Litan. Once again, I want to point out that low job creation and stagnation are not the same... MORE

Together with Michele Bachmann

Economics of Health Care
Arnold Kling
You will find me with her in the latest dead-tree issue of National Review. The cover story is on her surge in the Republican race for President. The author raises questions about her ability to execute a successful national campaign.... MORE

Democracy in America, 2011

Energy, Environment, Resources
Arnold Kling
The WSJ reports, Energy Secretary Steven Chu came out swinging Friday against a House bill that would repeal a 2007 federal law effectively outlawing older forms of incandescent bulbs... "We are taking away a choice that continues to let people... MORE

The Soup Kitchen Example

Behavioral Economics and Rationality
Arnold Kling
David French writes, In this category are all the things you do when a person typically thinks of "fighting poverty." Serve in a soup kitchen. Donate canned goods. Sponsor a child. Fight for the right candidates and public policies. Volunteer... MORE

I Told You So

Finance: stocks, options, etc.
Arnold Kling
Les Christie puts together a scorecard for foreclosure prevention programs under the Obama Administration. The programs are all either huge disappointments or "too soon to tell." In December 2008, after Mr. Obama had won the election but before he took... MORE

Stocks and the Economy, Again

Finance: stocks, options, etc.
Arnold Kling
Every few years, I have this argument with a new round of commenters. The ratio of stock prices to earnings is P/E. The ratio of earnings to GDP is E/Y. The ratio of stock prices to GDP is P/Y, which... MORE

Sentence to Ponder

Political Economy
Arnold Kling
Robin Hanson writes, It seems an especially bad idea for people to feel moral, without actually acting moral. He proceeds to talk about movies that allow us to feel moral by rooting for the good guy. But I was expecting... MORE

The Power of Folk Macroeconomics

Macroeconomics
Arnold Kling
Scott Sumner (he's back) [UPDATE--and with (ouch!) sarcasm] writes, In the past I've frequented discussed a strange sort of schizophrenia among macroeconomic commentators. They talk as if fiscal stimulus affects RGDP growth whereas monetary stimulus affects inflation. (Of course both... MORE

Non-profits, yet again

Economic Philosophy
Arnold Kling
Christopher writes, imagine three axis [axes], one that runs from voluntary to coerced, one that runs from private means to public means, and one that runs from public ends to private ends. Now imagine three spheres: one tends towards voluntary,... MORE

Competitive Government

Political Economy
Arnold Kling
Ilya Somin writes, Because California is extremely large and controls most of the warm-weather coastal territory on the West Coast, people have been willing to put up with a lot of bad policies for the opportunity to live there. Competitive... MORE

Payday Lending

Economic Methods
Arnold Kling
John Caskey writes In an ideal experiment, one would randomly grant payday loans to a group of applicants and randomly deny the loans as well as close substitutes to a similar group of applicants. One would then track indicators of... MORE

Paging the Left

Politics and Economics
Arnold Kling
Megan McArdle points to this analysis of why public worker pensions are underfunded. Basically, seemingly innocuous assumptions about the rate of return are very unrealistic, and this leads to massive underfunding. Back in 2003, when many Republicans were pushing private... MORE

Still More on Non-profits

Economic Philosophy
Arnold Kling
A commenter suggested, among other readings, Susan Rose-Ackerman: an organization that binds itself not to distribute its surpluses to owners may be trusted more by customers and donors unable to judge service quality directly... Second...The nonprofit form provides a weak... MORE

What I'm Reading

Business Economics
Arnold Kling
Books on start-ups (start-up porn?). Robert Cringely's Accidental Empires, which covers the pre-Internet personal computer boom. I re-read my own Under the Radar, which covers Web 1.0, as it were. Sarah Lacy's Once You're Lucky, Twice You're Good, which covers... MORE

More on Profits vs. Non-profits

Economic Philosophy
Arnold Kling
Picking up some comments on this post: 1. Non-profit is just a tax status. 2. One thinks of non-profits serving the poor, with for-profits serving the affluent. On (1), I can see it for hospitals. When I go to a... MORE

PSST and Aggregation

Macroeconomics
Arnold Kling
On PSST, my former thesis adviser writes via snail mail, Obviously I don't have to be told that there are very many outputs and very many distinguishable inputs. A question arises whether aggregation of some degree is a last resort,... MORE

The Alternate Universe Problem

Politics and Economics
Arnold Kling
Megan McArdle writes, If the GOP doesn't cut a deal sometime pretty soon, we're either going to default on our debt (hello, financial crisis, unemployment spike, substantial and immediate drop in GDP, followed by an angry mob of voters descending... MORE

On Profits vs. Non-profits

Political Economy
Arnold Kling
I am curious about the intuition that people have about non-profit work. The standard intuition is that going to work for a profitable company means that you are not serving people, only the profits of the company. On the other... MORE

Returns to Education, Again

Economics of Education
Arnold Kling
Tyler Cowen writes, If you believe in the signaling theory, however, his marginal product is fairly low, much lower than the wage he will be paid. They will fire him. He'll come out a bit ahead, if he is not... MORE

Amar Bhide on Bank Regulation

Finance: stocks, options, etc.
Arnold Kling
He writes, Regulators then shifted to edicts requiring banks to maintain a specified capital cushion, thick enough to cover potential losses. This approach presupposes that bank assets and exposures can be accurately measured. In fact, the financial statements of mega-banks... MORE

How William Easterly Declared Independence

Growth: Causal Factors
Arnold Kling
By writing this column. Unfortunately, with some exceptions, multilateral and bilateral agencies had incentives to continue lending even when recipient government actions destroyed any hope of economic growth. Sometimes donors and multilaterals gave aid and loans only because the function... MORE

Advantages of Mortgage Loans with Recourse

Finance: stocks, options, etc.
Arnold Kling
The Washington Post has a long piece on foreclosure backlogs. For a solution, I favor the Canadian system, in which mortgage loans are recourse loans. That is, if the lender cannot recover the mortgage amount by selling the house, the... MORE

Even prior to the financial crisis, the median duration of unemployment was in severe recession territory. Now, it is through the roof. In manufacturing, it almost appears that employment and output are decoupled. Output can increase while employment declines... MORE

Profit Margins in Education

Economics of Education
Arnold Kling
Vance Fried writes, Based upon the CELS and SHEEO studies, the real cost of undergraduate education could vary from $5,000 to $9,000 per year, depending on institutional characteristics. The rest of tuition is a markup over cost. He estimates the... MORE

Return to top